Why UPL Share Price is Falling

The Indian chemical sector's outlook was in jeopardy during the pandemic as uncertainties mounted. However, the shift in preference and the ongoing search for alternatives to China came as the silver lining.

On the back of this, the Indian chemical system achieved significant importance in the global market.

As we saw a surge in demand for chemicals from end-user industries such as food processing, personal care, and homecare, chemical stocks with a credible story enjoyed multiple tailwinds.

To support this demand needs, the government allowed 100% Foreign Direct Investment (FDI) in the chemical sector.

Despite this positive outlook, some top chemical stocks are yet to see the effect play out in their share prices.

For instance, shares of UPL have plunged over 8% in the last two days.

Here is what prompted a drop in the share price.

Q3 results dampen investor sentiment

UPL reported a 21% YoY jump in revenue at Rs 136.8 billion (bn) for the December 2022 quarter on the back of higher realisations.

Net profit for the quarter came in at Rs 10.8 bn, up 16% YoY against Rs 9.4 bn. However, this was way below street estimates and market expectations, dragged by the higher raw material costs.

Operating margins also contracted by 1.4% YoY to 22.2% as a result.

The sentiment was diminished further as Europe remained a challenge. In the European market, revenue grew by 10% YoY. This was due to the devaluation of the Euro, ongoing conflict and product bans.

Also, the company's Latin America arm, which contributes significantly to the company's overall sales, saw a sharp drop in revenues. This was due to rising prices and growing worries about a global recession.

Following the quarterly update, shares of UPL plunged over 2% intraday on Friday.

Long-term outlook remains positive

The management has reaffirmed that it will meet its full-year revenue and operating profit growth guidance. It has also expressed confidence in reducing its net debt to US$2 bn by March 2023.

The agrochemicals and herbicides segments are expected to continue to drive robust growth for the company.

The management also expects strong volume growth during March 2023 quarter, even as some channel-de-inventorying is taking place in the company.

The company's Canada arm, in January 2023, introduced its WAVE biostimulant in Canada to improve the resilience and nutrient efficiency across a wide range of crops which would increase the company's international earnings.

The demand is also expected to be aided by China plus one strategy of companies and the government's Atmanirbhar Bharat Abhiyan to reduce the dependence on imports for chemicals and make India more self-reliant.

How UPL shares have performed lately

UPL shares have declined by more than 5% in the last five days and more than 1% in the month gone by.

The company touched its 52-week high of Rs 848 on 4 May 2022 and its 52-week low of Rs 607.5 on 23 June 2022.

At the current price, UPL trades at a PE multiple of 28.3 and a price to book value multiple of 7.6.

As of December 2022, promoters owned 30.7% of the company. Mutual funds have decreased their exposure to the stock since March 2022. Mutual funds holding stood at 6.4% in September 2022 quarter. It now stands at 5.8%.

About UPL

UPL is a global generic crop protection chemicals and seeds company. The company is engaged in the business of agrochemicals, industrial chemicals, and chemical intermediates.

The agrochemicals segment consists of agrochemicals technical and formulations. The industrial chemicals segment consists of industrial chemicals and specialty chemicals. The others chemical segment consists of traded products.

The company has also got a captive power plant in Jhagadia.

The company offers a range of products, including insecticides, fungicides, herbicides, and rodenticides.

They operate in every continent and have a customer base in 123 countries.

For more details about the company, see the, UPL company fact sheet and quarterly results on our websites.

You can also compare UPL with its peers.

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